Contract Management Invitation to Tender Definition

Introduction

The main aim of this paper will be demonstrate steps needed to creation of the contract into the company. The general rule at common law is that the invitation to tender can be defined as an invitation to negotiate, not an offer (Spencer v. Harding (1870) LR 5 CP 561). The invitation should be presented in clear and orderly way and addressed to a small number of interested parties.

According to our case study, the project manager of ‘Company Ltd’, who is involved in contract negotiation for a major industrial project, is responsible for involving the contractors, who will be supplying the company with hardware and software. The company is looking for the best offer from suppliers, who will be able to meet their mandatory requirements.

Appendix below presents Invitation for Tender for the provision of hardware and software at ‘Company Ltd’.

Company Ltd

Invitation for Tender for the provision of hardware and software at ‘Company Ltd’

Dear Sir /Madams

‘Company Ltd’ would like to invite companies to a tender for a supply with hardware and software for a major industrial project, with budget of £100 million GBP. The established amount will be paid in two instalments.

The vendor is required to provide high quality products with an efficient and cost-effective solution to our business. The tender should include following hardware and software:

The most up-to-date hardware: Development PCs – Intel®Core™i7 processor based systems, 4 with NV460 graphics cards + 1 with IGPA 4.0 + additional equipment

A diverse range of the popular software, including: Microsoft Windows XP, Vista 7, Microsoft Office 2010, Microsoft Visual Studio 2010, Adobe Creative Suites 5, Firefox.

The evaluation process will be carried out to assure that bids are fairly appraised to ascertain those that represent best overall value and the highest expected quality of output during the contract.

Contractors should complete and submit two copies of the tender documents by post and one copy via e-mail, showing how they would meet the requirements.

The tender should be submitted by 16:00 pm on 20th May 2011. All queries regarding particular aspects of the tender should be submitted via e-mail to the addresses shown below by 15th May 2011 and directed to:

Name: Project Manager

Email:

Vendors should note that ‘Company Ltd’ will commence the contract on 12th June .

‘Company Ltd’ reserves the right to clarify with the vendor regarding any aspects arising from this Invitation to Tender after the tender submissions have been received.

Signature………………………………….. Data…………………………………..

The essentials of a binding contract

To enable business to take place in an international marketplace, contract law has to be fairly straightforward.

Contract is part of every operation which is intended to create the legal relationship. It is the binding agreement by two or more legally competent parties that had enforced by the law. Formation of a contract is written at the paper undersigned and agreed by those responsible people.

There are three fundamental requirements necessary for a contract to be valid:

An agreement which consists of an offer and its acceptance

Consideration which is something bargained for and given in exchange for a promise

An intention to create legal relations

An agreement

In general, a contract will exist when an agreement is made by acceptance of an offer.

The offer is a first, important element of a binding a contract because it plays significant role for both of parties. It can be defined as ‘a clear statement of the forms on which one party (the offeror) is prepared to do business with another party (the offeree). [1] An offer can be bilateral or unilateral.

Most offers are bilateral, what is means that a contract can be made between two parties whereby the offeree promises to buy and the offeror agrees to sell and supply goods of a proper standard. However, a unilateral offer is ‘a promise made in return for the completion of a specified act.’

Acceptance plays a key role in an offer and it can be defined as ‘an unconditional assent communicated by the buyer with all terms of the offer.’ [2] It is means that an offeree agrees to be bound by all the terms of the offer. However, in certain cases it is possible to have a binding contract without a matching offer and acceptance (Lord Denning in Gibson v Manchester City Council [1979]).

The courts have developed rules regarding acceptance. First of all, the acceptance of the offer must be communicated to the other party in the manner requested or implied by the offeror in the offer (Powell v Lee (1908) 99 LT 284). Secondly, if the offeree establishes a new term or varies the terms of the offer, then that reply cannot amount to an acceptance. Instead, the reply is treated as a “counter offer”, which the original offeror is free to accept or reject (Hyde v Wrench (1840) 3 Beav 334). What is more, it is important to determine the legal existence of an offer and acceptance.

Consideration

Consideration is an essential element of every simple contract. Legally it has been defined classically as ‘some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibilities given, suffered or undertaken by the other.’ In the other hand, consideration is price paid for the other party’s promise or act.

Consideration can take many forms, for example: the performance of a particular service, a payment of money, the delivery of property, or other things, which include a promise in return for the promise (Dunlop v Selfirge (1915, HL) case). In general, consideration is a key element to a valid contract.

Consideration contains the rules, which should be fulfilled. First of all, it should satisfactorily describe, represent advantages instead of paying prices in advance. Moreover, consideration must be sufficient, what is means that just proof of financial value has an influence to make consideration enough sufficient.

An intention to create Legal relations

An intention to create a legal relationship is an essential element of a valid contract. It is major element of formation of contracts after agreement and consideration.

In order to make an agreement enforceable, the courts have created two major guidelines in the form of rebuttable presumptions for determining whether or not an intension to create legal relations exists:

A social and domestic nature of an agreement it is a presumed that ‘there is no intention to create a legal relationship enforceable in law, unless the contrary can be proved’.

A commercial or business agreements, where intention to create a legal relationship and that the agreement is legally enforceable again, unless the contrary can be shown.’

In our case, the ‘Company Ltd’ after choosing the best offer, which meets their requirements, the company can go to the next stages connected with making the contract.

First of all, bidder has to submit complete tenders, providing all the information (including documents and other evidence) requested in this Invitation to Tender. Tender must be submitted by the date and time specified by ‘Company Ltd’ because otherwise the company might reject acceptance tender which is late or does not fully comply with the stipulated requirements. The complete tender must be provided in a common electronic format and the company expects sending to copies of tender documents by post.

The project manager in the ‘Company Ltd’ must know the rules of the contract to be able to talk effectively with chosen contractor. He is responsible for building a good relationship between the “Company Ltd’ and vendors. The project manager’s role is to make sure that action related with making a contract run correctly.

In order to make a valid offer, first of all, a legally binding offer should include clearly stated terms of the contract because if contract is not vague cannot be enforced (the Hillas v Arcos (1932, HL) case). That is more, ‘Company Ltd’ clearly predetermines all dates, which will be valid in the contract. Moreover, they determinate as well which type of hardware and software they are required from contractors and estimated budget.

The ‘Company Ltd’ was established budget of £100 million GBP on hardware and software provided by chosen vendor. The amount will be paid-off in two instalments: 30% of total amount of the contract will be paid before sign the contract, and 70% will be paid after delivery of the ordered hardware and software products.

After negotiations, both of the parties must to accept the fixed conditions of the contract and sign the contact concerning delivered with hardware and software.

Issues associated with ‘Letter of intent’, ‘Invitation to Tender’, tenders, evaluation of tenders and acceptance

‘Letter of intent’ – defines ‘the respective preliminary understandings of the parties about engage in contractual negotiations’. [3]

In the ‘Company Ltd’ Disadvantages:

Letters of intent take time to draft, discuss and sign – as a result, it delay the real work of crafting a definitive agreement and therefore forestall the closing of the relevant transaction

The risk associated with premature public disclose of the transaction contemplated thereby, especially when the purchase and sale of a public company or certain of its assets is involved

It present opportunities for unintended consequences for example poor drafting

Letter of intent actually promote inflexibility – according to this view signatories to a letter of intent may feel bound or constrained by the terms of the latter and may be unwilling to deviate from them.

Gary M. Lawrence, Carl Baranowski – Representing high-tech Law Journal Press, 1999 – 750 companies

The problems associated with contracts for the supply of goods and services

Every company must to be aware of problems associated with contracts for the supply of goods and services. They should undertake steps in order to protect their products against many of factors, which can have an influence on the products.

First of all, the Sale of Goods Act 1979 as the main act in the United Kingdom, which regulates English contract law, can help buyers to obtain redress when their purchases ‘go wrong’. It is in the interest of anyone who sells goods or services to understand the implications of the Act for them and the responsibilities they have under it.

According to the Sale of Goods Act, the supplier will be obliged to sort out the problem, if the ordered hardware and software will not be match description given to the company and will not meet the offered standards. What is more, the Act states that goods should be of satisfactory quality, which the vendor is obliged to deliver it.

Secondly, the ‘Company Ltd’ must to focus on other aspects formulated in the contract in order to protect the supply of hardware and software:

Intellectual Property – it is a ‘legal right to ownership of innovation, information and technical know-how’ [4] , which may be protected by a copyright, patent, trademark, trade secret laws, etc.

The contract between the ‘Company Ltd’ and the supplier have to include a legally act of Intellectual Property and clauses concerning confidentiality:

The ‘Company Ltd’ have direct access-right to use the products based on software licence, however, for the sake of signed licence, data dissemination is not allowed.

The vendor reserves the right to copy software. In order to secure the purchased goods, the supplier determinates the limit of 1500 copies of software per 6 months. [E.F. Johnson Co. V Uniden Corp. (623 F. Supp. 1485 [D. Minn.1985])]. In order to avoidance jeopardize trade secrets just IT manger will be responsible for copying software.

In case of duplication or hardware or software theft, the company is obliged to inform the vendor about the situation.

The contract contains as well additional clauses associated with problems of supply of hardware and software, like:

Force Majeure, which can caused delays, cancellation or suspension or of the contract. However, both of the parties will not be responsible for those damages and losses because they have not an influence on force majeure. The force majeure include for example:

Act of God

Act of Government

Trade union dispute (eg strike)

Failure of products due to fire or accident

Illegal software

Failure of equipment

Data removal

Hack into the system

Retention of title – it is a clause, which allows the vendor to retain ownership over the goods supplied until such time as certain conditions are met, thus providing the supplier with a form of security against the buyer’s default or insolvency.

The supplier reserves the exclusive right to hardware and software, which cannot be transfer on the company.

Insolvency – the contract between parties includes as well The Insolvency Act 1986. It is an Act to consolidate the enactments relating to company insolvency and enactments relating to the insolvency and bankruptcy of the company. [5]

In case, when the ‘Company Ltd’ does not able to defray costs of hardware and software, the vendor can automatically breach of contract or appoint a fine in the amount of 40 million GBP. Moreover, the supplier might bring a case before the court.

Breach of contract

Breach of contract basically means that one or more of the terms and conditions laid out in a contract has been broken.

Professor Treitel (2007, para. 17-049) said that ‘breach of contract will occur where, without lawful excuse, a party either fails or refuses to perform a contractual obligation imposed on that party by the terms of the contract or performs a contractual obligation in a defective manner’. [6]

However, a breach of contract does not automatically bring a contract to an end (Decro-Wall International SA v Practitioners in Marketing Ltd [1971] 1 WLR 361). It can be identified three principal consequences of the breach of the contract:

First of all, As a result of the breach of contract, whatever the innocent party has lost, they are entitled to recover that amount of damages.

The innocent party may be in the situation that they are not in a position to sue the offending party to enforce their obligations to the contract.

The innocent party may be entitled to terminate further performances of the contract due to the fact it has been breached in the first place.

In case of breach of contract will give rise to a right to claim damages. The parties to the contract may make a genuine assessment of the losses which are likely to result in the event of a breach, and stipulate that such amount shall be payable in the event of a breach. Such clauses are defined as liquidated damages clauses, which will be effective in the event of a breach, and the vendor must take reasonable steps to mitigate his losses and recover caused damages.

In our case, the ‘Company Ltd’ established fallowing liquidated damages clauses, which can provide to breach of the contract:

Premature termination of the contract.

If the vendor breaks the contract before it should be completed, the supplier must to incur a stipulated penalty of 15% of the total project’s amount.

The ‘Company Ltd’ reserves the right to privacy.

The defendant of the contract is required to keep confidential. If the contractor does not meet the ‘Company Ltd’ conditions, he will be responsible to incur fine of £10 million GBP.

Misrepresentation

The ‘Company Ltd’ has a right to apply for a repayment, in case when the hardware and software will not meet requirements of the ‘Company Ltd’.

Failure to deliver products

If the vender does not deliver ordered by ‘Company Ltd’ products, he will be obliged to incur penalty of 20% of the amount of ordered goods.

Delays in delivery

If the hardware and software do not be delivered on time, the contactor will be obliged repeat delivery in 30 days. If he does not meet the required conditions of the contract and the equipment still will be delayed, the company will charge interest for default of 5% of the ordered good.

Delivery of damaged goods

In case of damaged delivery products, the vendor is obligated to provide the ‘Company Ltd’ with a new hardware and software products within 15 days. If he does not meet the required conditions of the contract, the company will add additional charges for time leg.

Unliquidated damages are genuine estimated by the court and are designed to compensate the innocent party for any losses incurred as a result of a breach of contract. However, the innocent party will only be entitled to claim nominal damages, where losses cannot be proved. (Surrey CC v Bredero Homes (1993)).

In our case, no actions for unliquidated damages will be allowed.

Dispute Resolution

Disputes usually arise out of business transactions that were the result of direct negotiations between the parties.

The ‘Company Ltd’ understands that settlement negotiations are usually the best means to resolve a dispute.  The project manager of the company will be responsible for creating a climate and context for those negotiations to lead to a favourable outcome as inexpensively and quickly as possible.

If a dispute must be resolved by means of an arbitration, the ‘Company Ltd’s experienced litigators will be prepared and ready to present a vendor’s legal position as persuasively and effectively as possible.